'The shipbuilding industry is booming...' Samsung Heavy Industries sells its headquarters building again after 23 years

[Korea Financial Times, Shin Haeju] Samsung Heavy Industries (CEO Choi Sung-ahn) has signed a deal to sell its Pangyo R&D center and land for KRW 400 billion and sublease the building back to the company. The company sold its Gangnam headquarters in a similar fashion 23 years ago, but it's a far cry from then.

Samsung Heavy Industries used the 'Sales & Lease Back' method of selling and then re-lease. This method involves selling real estate or buildings owned by a company to a financial company and using the proceeds as operating funds. The assets sold are re-leased from the financial company and used.

'Sale-and-leaseback' is a method that companies often used to secure liquidity during the restructuring process right after the International Monetary Fund (IMF) foreign exchange crisis. When Samsung Heavy Industries sold its Gangnam building in Yeoksam-dong, Seoul for KRW 122.5 billion in 2002, it was done as part of restructuring.

At that time, the entire sale proceeds were used to repay borrowings to strengthen the financial structure, but this sale of the Pangyo building is different. Samsung Heavy Industries plans to use a significant portion of the sale proceeds as investment resources for new future technologies, following the shipyard’s unmanned and automated operation and autonomous ship navigation. Some of it will be used to improve financial health, but this is more of a proactive response than because the current financial metrics are bad.

A company official responded, “It’s not 100% of the sale proceeds, but we plan to use it primarily to enhance future competitiveness.”

As of the end of the third quarter of this year, Samsung Heavy Industries held KRW 630.5 billion in cash and cash equivalents. This is actually a 27.68% increase from the same period last year. The debt ratio is 304.05%, which is higher than its competitors HD Hyundai Heavy Industries (208.69%) and Hanwha Ocean (291.48%), but it is gradually decreasing. It is down 24.63 percentage points from the same period last year, and lower than 345.52% in the first quarter and 328.18% in the second quarter.

The shipbuilding industry is also doing well due to the growing demand for liquefied natural gas (LNG) and eco-friendly ships. As of the end of September, Samsung Heavy Industries' order backlog stood at KRW 31.4 trillion.

In addition to Samsung Heavy Industries, there are other companies that use the sale-and-leaseback method. Earlier, Doosan Corp., the holding company of Doosan Group, sold and leased Doosan Tower and the corresponding site in Dongdaemun-gu, Seoul for KRW 800 billion in September 2020 to improve its financial structure.

Shin Haeju (hjs0509@fntimes.com)